F O R M 1 0 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or the transition period from ________ to ________
Commission File Number 1-6948
SPX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 38-1016240
(State of Incorporation) (I.R.S. Employer Identification No.)
700 Terrace Point Drive, Muskegon, Michigan 49443
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code (616) 724-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common shares outstanding October 22, 1996 -- 14,668,914
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 30 December 31
1996 1995
-------- --------
(in thousands)
ASSETS
Current assets:
Cash and temporary investments $ 25,239 $ 17,069
Receivables 150,967 130,171
Inventories 133,880 150,851
Deferred income tax asset and refunds 44,264 47,246
Prepaid and other current assets 21,222 18,191
-------- --------
Total current assets $ 375,572 $ 363,528
Investments 21,110 18,885
Property, plant and equipment, at cost 427,878 425,636
Accumulated depreciation (230,663) (212,672)
Net property, plant and equipment 197,215 212,964
Costs in excess of net assets of
businesses acquired 187,516 192,334
Other assets 25,322 43,647
-------- --------
Total assets $ 806,735 $ 831,358
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 1,755 $ 893
Accounts payable 68,214 71,379
Accrued liabilities 148,876 135,387
Income taxes payable 5,250 3,352
-------- --------
Total current liabilities $ 224,095 $ 211,011
Long-term liabilities 112,972 113,737
Deferred income taxes 11,924 25,489
Long-term debt 284,085 318,894
Shareholders' equity:
Common stock 162,721 159,474
Paid in capital 58,090 57,668
Retained earnings 23,858 18,997
-------- --------
$ 244,669 $ 236,139
Common stock held in treasury (50,000) (50,000)
Unearned compensation (22,008) (26,888)
Cumulative translation adjustments 998 2,976
-------- --------
Total shareholders' equity $ 173,659 $ 162,227
-------- --------
Total liabilities and shareholders'
equity $ 806,735 $ 831,358
======== ========
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands, except per share amounts)
Revenues $ 254,979 $ 268,790 $ 857,910 $ 837,935
Costs and expenses
Cost of products sold 191,647 205,038 655,795 647,137
Selling, general and admin. 46,075 47,054 142,951 150,062
Goodwill/Intangible amort. 1,767 2,252 5,432 6,761
Minority interest (income) 0 (240) 0 (1,489)
Restructuring charge 3,204 0 15,883 0
Earnings from equity interests (1,442) (972) (4,025) (3,303)
-------- -------- -------- --------
Operating income from
continuing operations $ 13,728 $ 15,658 $ 41,874 $ 38,767
Other expense (income), net (219) (311) 526 (1,939)
Interest expense, net 7,759 8,892 24,865 27,245
-------- -------- -------- --------
Income before income taxes $ 6,188 $ 7,077 $ 16,483 $ 13,461
Provision for income taxes 2,351 2,873 6,355 5,484
-------- -------- -------- --------
Income from continuing
operations $ 3,837 $ 4,204 $ 10,128 $ 7,977
Discontinued operation:
Income(loss) from discontinued
operation, net of tax $ 0 $ (44) $ 0 $ 140
Loss on sale, net of tax 0 (2,987) 0 (2,987)
-------- -------- -------- --------
Income(loss) from discontinued
operation, net of tax $ 0 $ (3,031) $ 0 $ (2,847)
Income before extraordinary loss $ 3,837 $ 1,173 $ 10,128 $ 5,130
Extraordinary loss, net of tax (774) (471) (1,153) (749)
-------- -------- -------- --------
Net income $ 3,063 $ 702 $ 8,975 $ 4,381
======== ======== ======== ========
Income (loss) per share:
From continuing operations $ 0.27 $ 0.32 $ 0.73 $ 0.61
From discontinued operation - (0.23) - (0.22)
Extraordinary loss, net of tax (0.05) (0.04) (0.08) (0.06)
-------- -------- -------- --------
Net income $ 0.22 $ 0.05 $ 0.65 $ 0.33
======== ======== ======== ========
Dividends per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
Weighted average number of
common shares outstanding 14,209 13,203 13,881 13,125
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
1996 1995
------- -------
(in thousands)
Cash flows from operating activities:
Net income $ 8,975 $ 4,381
Adjustments to reconcile net income to net
cash from operating activities -
Extraordinary loss 1,153 749
Depreciation and amortization 31,833 33,483
(Earnings) from equity interests (4,025) (3,303)
Income applicable to minority interest 0 (1,489)
Decrease (increase) in net deferred income tax
assets, refunds and liabilities (10,462) 24,269
(Increase) in receivables (21,459) (7,877)
Decrease (increase) in inventories 16,065 (8,154)
Decrease (increase) in prepaid and other current assets (3,259) 9,451
Increase in net assets of discontinued operation 0 1,276
Increase (decrease) in accounts payable (2,910) (6,492)
Increase (decrease) in accrued liabilities 4,383 5,407
Increase (decrease) in income taxes payable 2,798 3,666
(Increase) decrease in other assets 10,906 2,767
Restructuring charge 15,883 0
Increase (decrease) in long-term liabilities (765) (4,026)
Compensation recognized under employee stock plan 3,303 2,290
Other, net 1,643 4,647
------- -------
Net cash provided by operating activities $ 54,062 $ 61,045
Cash flows provided (used) by investing activities:
Capital expenditures $(12,036) $(24,319)
Proceeds from sale of SPX Credit Corporation - 73,183
------- -------
Net cash provided (used) by investing activities $(12,036) $ 48,864
Cash flows provided (used) by financing activities:
Net borrowings (payments) under debt agreements $ (7,877) $(69,773)
Purchase of senior subordinated notes (25,645) (24,680)
Payment of fees related to debt restructuring (1,860) (1,255)
Net shares sold under stock option plan 4,947 1,185
Dividends paid (4,114) (3,928)
------- -------
Net cash used by financing activities $(34,549) $(98,451)
Effect of exchange rate changes on cash $ 693 $ (472)
Net increase in cash and temporary investments 8,170 10,986
Cash and temporary investments, beg. of period 17,069 9,859
------- -------
Cash and temporary investments, end of period $ 25,239 $ 20,845
======= =======
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (Unaudited)
1. The interim financial statements reflect the adjustments which are, in the
opinion of management, necessary to a fair statement of the results of the
interim periods presented. The adjustments are of a normal recurring nature. The
preparation of the company's consolidated condensed financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated condensed financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Certain nine month 1996 amounts have been reclassified to
conform with the third quarter presentation. This reclassification had no effect
on net income.
2. Sale of the Hy-Lift division
During the fourth quarter of 1996, the company anticipates completion the sale
of its Hy-Lift division to W.A. Thomas Company. The Hy-Lift division
manufactures valve train components for manufacturers of motor vehicles and for
the automotive aftermarket. It has sales of approximately $45 million. The
transaction price is currently estimated at approximately $18 million, a
majority in cash and is based upon adjusted net book value. The company has
estimated that any gain or loss on this transaction will be immaterial.
3. Pending Sale of the Sealed Power division
On August 29, 1996, the company announced it had signed a letter of intent with
Dana Corporation for the sale of its Sealed Power division, Sealed Power Europe
and ownership in various joint ventures in Mexico and the United States for $235
million, which is in excess of the company's carrying value. These operations
manufacture piston rings and cylinder liners for manufacturers of motor vehicles
and for the automotive aftermarket. The transaction is pending completion of the
due diligence process and U.S. regulatory approval, and is currently expected to
be completed by year-end.
4. Restructuring
During the fourth quarter of 1995, the company initiated two significant
restructurings. The first combined five Specialty Service Tool divisions into
two divisions and the second closed a foundry at SP Europe.
During the second quarter of 1996, the company initiated two additional
restructurings. The first included realigning and downsizing the Specialty
Service Tool international operations, primarily in Europe. The second involved
an early retirement program at the Sealed Power division.
A summary of these restructuring charges was as follows (in millions):
1996(1) 1995(2)
------ ------
Restructuring - 5 divisions into 2 divisions $ 7.1 $ 7.0
Specialty Service tools - early retirement program 1.1 -
Closing of foundry at SP Europe - 3.7
Specialty Service tools - International streamlining 3.5 -
Sealed Power division - early retirement program 4.2 -
------ ------
$ 15.9 $ 10.7
(1) Recorded year-to-date in 1996.
(2) Recorded in 4th quarter of 1995.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (Unaudited)
Specialty Service Tool Restructuring - As of September 30, 1996, the
restructuring was progressing as planned. The closing of one manufacturing
facility occurred in the second quarter and the closing of the other
manufacturing facility will occur by year end. The closing of the distribution
facility was completed in the third quarter. Essentially all of the net 310
employee positions identified in this restructuring have been eliminated as of
September 30, 1996. At September 30, 1996, approximately $2.7 million of
accruals recorded in the fourth quarter of 1995 are available for the remaining
severance periods.
In the first quarter of 1996, $1.1 million was recorded as a restructuring
charge to reflect the incremental cost of an early retirement program that was
accepted by approximately 60 people.
Additionally, the company has incurred $7.1 million of restructuring costs in
1996 to facilitate the combination of the five divisions into two divisions.
SP Europe Restructuring - German Plant - The restructuring is progressing on
schedule and the foundry was closed in July. As of September 30, 1996,
approximately 125 of the 200 employee positions planned to be reduced have been
eliminated. Approximately $1.2 million of accruals recorded during the fourth
quarter of 1995 for severance remain at September 30, 1996.
Specialty Service Tools - International Restructuring - During the second
quarter of 1996, the company recorded a $3.5 million restructuring charge
principally to recognize severance associated with the termination of 113
international employees and the related operations downsizing costs. As of
September 30, 1996, all of these employees had been terminated.
Sealed Power Division - Early Retirement Program - During the second quarter of
1996, the company recorded a $4.2 million restructuring charge for an early
retirement program at the Sealed Power division. 94 employees elected to
participate in this program.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (Unaudited)
5. Information regarding the company's segments was as follows:
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
------ ------ ------ ------
(in millions)
Revenues:
Specialty Service Tools $132.8 $147.7 $463.5 $436.6
Original Equipment Components 122.2 121.1 394.4 401.3
------ ------ ------ ------
Total $255.0 $268.8 $857.9 $837.9
====== ====== ====== ======
Operating income (loss):
Specialty Service Tools $ 7.9 $ 11.7 $ 26.0 $ 25.6
Original Equipment Components 11.2 8.4 32.0 28.4
General Corporate (5.4) (4.4) (16.1) (15.2)
------ ------ ------ ------
Total $ 13.7 $ 15.7 $ 41.9 $ 38.8
====== ====== ====== ======
Capital Expenditures:
Specialty Service Tools $ 1.7 $ 1.1 $ 3.1 $ 5.0
Original Equipment Components 2.2 4.2 8.3 18.9
General Corporate 0.3 0.0 0.6 0.4
------ ------ ------ ------
Total $ 4.2 $ 5.3 $ 12.0 $ 24.3
====== ====== ====== ======
Depreciation and Amortization:
Specialty Service Tools $ 3.3 $ 3.7 $ 10.2 $ 11.4
Original Equipment Components 6.7 6.8 20.4 20.3
General Corporate 0.3 0.8 1.2 1.8
------ ------ ------ ------
Total $ 10.3 $ 11.3 $ 31.8 $ 33.5
====== ====== ====== ======
September 30 December 31
1996 1995
------ ------
Identifiable Assets:
Specialty Service Tools $381.6 $390.3
Original Equipment Components 366.7 361.8
General Corporate 58.4 79.3
------ ------
Total $806.7 $831.4
====== ======
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following unaudited information should be read in conjunction with the
company's unaudited consolidated financial statements and the related footnotes.
Update on Restructuring
Please refer to footnote 3 to the consolidated condensed financial statements.
CONSOLIDATED - Results of Operations:
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
(in millions)
Revenues:
Specialty Service Tools............ $ 132.8 $ 147.7 $ 463.5 $ 436.6
Original Equipment Components...... 122.2 121.1 394.4 401.3
------ ------ ------ ------
Total............................ $ 255.0 $ 268.8 $ 857.9 $ 837.9
====== ====== ====== ======
Operating income (loss):
Specialty Service Tools............ $ 7.9 $ 11.7 $ 26.0 $ 25.6
Original Equipment Components...... 11.2 8.4 32.0 28.4
General corporate expense.......... (5.4) (4.4) (16.1) (15.2)
------ ------ ------ ------
Total............................ $ 13.7 $ 15.7 $ 41.9 $ 38.8
Other expense (income), net........ (0.3) (0.3) 0.5 (1.9)
Interest expense, net.............. 7.8 8.9 24.9 27.2
------ ------ ------ ------
Income before income taxes......... $ 6.2 $ 7.1 $ 16.5 $ 13.5
Provision for income taxes......... 2.4 2.9 6.4 5.5
------ ------ ------ ------
Income from continuing operations.. $ 3.8 $ 4.2 $ 10.1 $ 8.0
Income (loss) from discontinued
operation........................ - (3.0) - (2.9)
Extraordinary loss, net of taxes... (0.7) (0.5) (1.1) (0.7)
------ ------ ------ ------
Net income......................... $ 3.1 $ 0.7 $ 9.0 $ 4.4
====== ====== ====== ======
Capital expenditures............... $ 12.0 $ 24.3
Depreciation and amortization...... 31.8 33.5
On the following pages, revenues, operating income and related items are
discussed by segment. The following provides explanation of general corporate
expenses and other consolidated items that are not allocated to the segments.
Third Quarter 1996 vs. Third Quarter 1995
General Corporate expense - These expenses represent general unallocated
expenses. In the third quarter of 1996, incentive compensation expense was
greater than the third quarter of 1995.
Other expense (income), net - Represents expenses not included in the
determination of operating results, including gains or losses on currency
exchange, gains or losses due to translation of financial statements in highly
inflationary countries, the fees incurred on the sale of accounts receivable
under the company's accounts receivable securitization program, gains or losses
on the sale of fixed assets and unusual non-operational gains or losses.
Interest Expense, net - During the third quarter of 1995, a portion of interest
expense was allocated to the discontinued operation, SPX Credit Corporation.
Third quarter 1996 interest expense was less than the third quarter 1995
interest expense due to lower debt levels.
Provision for Income Taxes - The third quarter 1996 effective income tax rate
was approximately 38% which reflects the company's current estimated rate for
the balance of the year.
Income from Discontinued Operation - The third quarter of 1995 reflects the
results of SPX Credit Corporation, net of allocated interest and income taxes,
as a discontinued operation. SPX Credit Corporation was sold at the end of the
third quarter of 1995.
Extraordinary Loss, net of taxes - During the third quarter of 1996, the company
purchased $17.3 million of its 11_ senior subordinated notes. These were
purchased in the market at a premium of $774,000, net of income taxes. During
the third quarter of 1995, the company purchased $15.2 million of these at a
market premium of $471,000, net of income taxes.
First Nine Months of 1996 vs. First Nine Months of 1995
General Corporate expense - In the first nine months of 1996, incentive
compensation expense was greater than the first nine months of 1995. The first
nine months of 1995 included a $1.8 million charge related to early retirement
of three officers and severance costs associated with six employees at the
corporate office.
Other expense (income), net - In the first quarter of 1995, a $1.5 million gain
was recorded on the sale of the company's export aftermarket component
distribution business.
Interest Expense, net - During the first nine months of 1995, a portion of
interest expense was allocated to the discontinued operation, SPX Credit
Corporation. First nine months of 1996 interest expense was less than the first
nine months of 1995 interest expense due to lower debt levels.
Provision for Income Taxes - The first nine months of 1995 effective income tax
rate was approximately 38%, which reflects the company's current estimated rate
for the year.
Income from Discontinued Operation - The first nine months of 1995 reflects the
results of SPX Credit Corporation, net of allocated interest and income taxes,
as a discontinued operation. SPX Credit Corporation was sold at the end of the
third quarter of 1995.
Extraordinary Loss, net of taxes - During the first nine months of 1996, the
company purchased $25.6 million of its 11_ senior subordinated notes. These were
purchased in the market at a premium of $1,153,000, net of income taxes. During
the first nine months of 1995, the company purchased $25 million of these at a
market premium of $749,000, net of income taxes.
SPECIALTY SERVICE TOOLS - Results of Operations:
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
(in millions)
Revenues........................... $ 132.8 $ 147.7 $ 463.5 $ 436.6
Gross Profit....................... 45.3 48.9 144.6 142.1
% of revenues.................... 34.1% 33.1% 31.2% 32.5%
Selling, general & administrative.. 33.1 36.0 103.7 112.9
% of revenues.................... 24.9% 24.4% 22.4% 25.9%
Goodwill/intangible amortization... 1.0 1.3 3.2 4.0
(Earnings) from equity interests... 0.1 (0.1) 0.0 (0.4)
Restructuring charge............... 3.2 0.0 11.7 0.0
------ ------ ------ ------
Operating income................... $ 7.9 $ 11.7 $ 26.0 $ 25.6
====== ====== ====== ======
Capital expenditures............... $ 3.1 $ 5.0
Depreciation and amortization...... 10.2 11.4
September 30, 1996 December 31, 1995
(in millions)
Identifiable assets............... $ 381.6 $ 390.3
Third Quarter 1996 vs. Third Quarter 1995
Revenues - Third quarter 1996 revenues decreased $14.9 million, or 10.1%, from
the third quarter of 1995. The most significant decrease in revenues was due to
fewer essential tool programs during the quarter. The balance of specialty
service tool sales were comparable to the third quarter of 1995.
Gross Profit - Third quarter 1996 gross profit as a percentage of revenues
("gross margin") of 34.1% was higher than the 33.1% gross margin in 1995. The
increase in the gross margin was a result of the initial cost reductions from
the company's restructuring initiatives and a mix change towards internally
manufactured product sales.
Selling, General and Administrative ("SG&A") - Third quarter 1996 SG&A expense
was $33.1 million, or 24.9% of revenues, compared to $36.0 million, or 24.4% of
revenues, in 1995. The reduction in third quarter SG&A reflects the company's
continuing cost reduction efforts.
Goodwill/Intangible Amortization - Non-cash goodwill and intangible amortization
results primarily from excess purchase price over fair value of assets in
acquisitions.
(Earnings) from equity interests - Represents the equity (earnings) or losses of
JATEK, a 50% owned joint venture in Japan.
Restructuring Charge - The third quarter of 1996 included $3.2 million of
restructuring costs associated with the company's ongoing combination of five
divisions into two operating units. These incremental expenses are being
incurred to accomplish the integration of these divisions and cost reduction
benefits will occur in the future.
Operating Income - Third quarter of 1996 operating income was $7.9 million
(which includes $3.2 million of restructuring charges) and third quarter 1995
operating income was $11.7 million.
First Nine Months of 1996 vs. First Nine Months of 1995
Revenues - First nine months of 1996 revenues increased $26.9 million, or 6.2%,
over the first nine months of 1995. The most significant explanation for the
increased revenues was an increase of approximately $32 million in dealer
equipment sales. These sales were principally to one customer and represent a
large domestic and international equipment program during the first six months.
The balance of specialty service tool sales were comparable to the first nine
months of 1995.
Gross Profit - First nine months of 1996 gross profit as a percentage of
revenues ("gross margin") of 31.2% was lower than the 32.5% gross margin in
1995. The decrease in the gross margin was a direct result of the significant
increase in dealer equipment sales in 1996. Dealer equipment sales have a
relatively low (less than 15%) gross margin.
Selling, General and Administrative ("SG&A") - First nine months of 1996 SG&A
expense was $103.7 million, or 22.4% of revenues, compared to $112.9 million, or
25.9% of revenues, in 1995. The reduction in first nine months SG&A reflects the
effect of the one-time dealer equipment sales ($32 million) which carry very low
selling and administrative costs relative to sales and a $1.5 million decrease
in research and development costs which were high in 1995 due to the development
of gas emissions testing and hand-held diagnostic products. The first nine
months of 1995 also included a $1.1 million charge for severance costs
associated with approximately 140 people in 1995.
Goodwill/Intangible Amortization - Non-cash goodwill and intangible amortization
results primarily from excess purchase price over fair value of assets in
acquisitions.
(Earnings) from equity interests - Represents the equity (earnings) or losses of
JATEK, a 50% owned joint venture in Japan. The first nine months of 1996
reflects costs associated with an inventory reduction and rationalization plan
being implemented at JATEK.
Restructuring Charge - The company recorded $11.7 million of restructuring
charges in the first nine months of 1996. The charges included a first quarter
$1.1 million restructuring charge to reflect the incremental cost associated
with 60 employees electing to participate in an early retirement program and a
second quarter $3.5 million restructuring charge to recognize severance
associated with the termination of 113 international employees and the related
operations downsizing costs. Additionally, the charge includes $7.1 million of
incremental expenses associated with the company's ongoing combination of five
divisions into two operating units. These incremental expenses are being
incurred to accomplish the integration of these divisions and cost reduction
benefits will occur in the future. The company currently estimates that
approximately $4 million of costs are required to complete this reconfiguration
in 1996.
Operating Income - First nine months of 1996 operating income was $26.0 million
(which included $11.7 million of restructuring charges) and first nine months of
1995 operating income was $25.6 million. Excluding the restructuring charges,
the increase was primarily attributable to higher revenues and cost reductions
in 1996. The first nine months of 1995 was impacted by the higher R&D levels and
the severance charge for 140 people.
Capital Expenditures - First nine months of 1996 capital expenditures were $3.1
million compared to first nine months of 1995 capital expenditures of $5.0
million. The company continues to invest in manufacturing capability and systems
to better support customers. Full year 1996 capital expenditures are expected to
approximate $6 million which will include approximately $2 million of
incremental spending to support the restructuring.
Identifiable Assets - Identifiable assets at September 30, 1996 decreased
approximately $9 million from year-end 1995. The decrease principally relates to
a $10 million reduction in inventory offset somewhat by higher accounts
receivable levels. The increase in accounts receivable was a result of higher
revenues in August and September of 1996 compared to November and December of
1995.
ORIGINAL EQUIPMENT COMPONENTS - Results of Operations:
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
(in millions)
Revenues........................... $ 122.2 $ 121.1 $ 394.4 $ 401.3
Gross Profit....................... 17.2 14.9 56.6 48.7
% of revenues.................... 14.1% 12.3% 14.4% 12.1%
Selling, general & administrative.. 6.8 6.7 22.2 21.9
% of revenues.................... 5.6% 5.5% 5.6% 5.5%
Goodwill/intangible amortization... 0.7 1.0 2.2 2.8
Minority interest (income)......... 0.0 (0.3) 0.0 (1.5)
(Earnings) from equity interests... (1.5) (0.9) (4.0) (2.9)
Restructuring charge............... 0.0 0.0 4.2 0.0
------ ------ ------ ------
Operating income................... $ 11.2 $ 8.4 $ 32.0 $ 28.4
====== ====== ====== ======
Capital expenditures............... $ 8.3 $ 18.9
Depreciation and amortization...... 20.4 20.3
September 30, 1996 December 31, 1995
(in millions)
Identifiable assets............... $ 366.7 $ 361.8
Third Quarter 1996 vs. Third Quarter 1995
Revenues - Third quarter 1996 revenues were up $1.1 million, or 1.0%, over third
quarter 1995 revenues. The comparable level of revenues was attributable to
continuing strength in new vehicle production.
Gross Profit - Third quarter 1996 gross margin of 14.1% compares favorably to
the third quarter 1995 gross margin of 12.3%. The improvement was attributable
to overall cost reduction initiatives, particularly at the company's German
piston ring plant. Also, several factors contributing to relatively low gross
margin in 1995 were (1) the die-casting metal pricing pass through to customers
reduced gross margins as the increase in revenues equals the increase in costs,
(2) SP Europe incurred additional costs associated with the ongoing process to
achieve profitability, and (3) a die-casting facility incurred incremental costs
associated with a product change over.
Selling, General and Administrative ("SG&A") - SG&A was $6.8 million, or 5.6% of
revenues, in the third quarter of 1996 compared to $6.7 million, or 5.5% of
revenues, in 1995. This reflects the segment's continuing cost containment
efforts as the dollar amounts of SG&A in the comparative quarters are
essentially the same.
Goodwill/Intangible Amortization - Goodwill and intangible amortization was a
result of the excess purchase price over the fair value of assets recorded upon
the acquisition of 51% of SPT at the end of 1993.
Minority interest (income) - The third quarter of 1995 reflects the 30%
partner's minority interest in the results of SP Europe. During the fourth
quarter of 1995, the 30% partner limited its participation by not fully funding
its share of SP Europe. Starting in the fourth quarter of 1995, the company
records 100% of SP Europe's income or loss due to this limited participation.
(Earnings) from equity interests - Earnings from equity interests include the
company's share of earnings or losses in Promec, IBS Filtran and Allied Ring
Corporation ("ARC").
Operating Income - Third quarter 1996 operating income was $11.2 million and
third quarter of 1995 operating income was $8.4 million. The $2.8 million
increase reflects the impact of cost reduction initiatives, particularly at the
piston ring facility in Germany.
First Nine Months of 1996 vs. First Nine Months of 1995
Revenues - First nine months of 1996 revenues were down $6.9 million, or 1.7%,
over the first nine months of 1995 revenues. The decrease was a result of lower
aftermarket shipments, particularly in the first half. The decrease in revenues
was mitigated somewhat by strong demand for cylinder liners. First nine months
of 1995 revenues were also higher due to the effect of higher die-casting metal
prices.
Gross Profit - First nine months of 1996 gross margin of 14.4% compares
favorably to the first nine months of 1995 gross margin of 12.1%. The
improvement was attributable to overall cost reduction initiatives, particularly
at the company's German piston ring plant. Also, several factors contributed to
relatively low gross margin in 1995; (1) the die-casting metal pricing pass
through to customers reduced gross margins as the increase in revenues equals
the increase in costs, (2) during the first quarter of 1995, the company
purchased approximately $6 million of inventory from an aftermarket customer,
began to package this inventory for the customer and recorded a $1.2 million
charge to state this inventory at the company's standard inventory cost, (3) SP
Europe recorded approximately $.8 million in severance charges and incurred
additional costs associated with the ongoing process to achieve profitability,
and (4) a die- casting facility incurred incremental costs associated with
product change over.
Selling, General and Administrative ("SG&A") - SG&A was $22.2 million, or 5.6%
of revenues, in the first nine months of 1996 compared to $21.9 million, or 5.5%
of revenues, in 1995. This reflects the segment's continuing cost containment
efforts as the dollar amounts of SG&A in the comparative quarters are
essentially the same.
Goodwill/Intangible Amortization - Goodwill and intangible amortization was a
result of the excess purchase price over the fair value of assets recorded upon
the acquisition of 51% of SPT at the end of 1993.
Minority interest (income) - The first nine months of 1995 reflects the 30%
partner's minority interest in the results of SP Europe. During the fourth
quarter of 1995, the 30% partner limited its participation by not fully funding
its share of SP Europe. Starting in the fourth quarter of 1995, the company
records 100% of SP Europe's income or loss due to this limited participation.
(Earnings) from equity interests - Earnings from equity interests include the
company's share of earnings or losses in Promec, IBS Filtran and Allied Ring
Corporation ("ARC").
Restructuring charge - During the second quarter of 1996, the company recorded a
$4.2 million restructuring charge for an early retirement program at the Sealed
Power division; 94 employees elected to participate in this program.
Operating Income - First nine months of 1996 operating income was $32.0 million
and first nine months of 1995 was $28.4 million. The 1996 operating income was
reduced by the $4.2 million restructuring charge for the early retirement
program in 1996. However, the first nine months of 1995 included the $1.2
million charge associated with the inventory purchase from the aftermarket
customer and the $.8 million of severance costs at SP Europe.
Capital Expenditures - Capital expenditures in the first nine months of 1996
were $8.3 million and $18.9 million in the first nine months of 1995.
Significant capital improvements were in process during late 1994 and carried
over into the first half of 1995. These projects include an additional solenoid
valve assembly line, additional die-casting capacity for high strength heat
treated aluminum die-castings for air bag steering columns and additional
automated cylinder sleeve casting and machining capacity to meet the demand for
aluminum block cylinder liners. Capital expenditures for 1996 are expected to
approximate $15 million and will be focused upon cost reductions and maintenance
of the operations.
Identifiable Assets - Identifiable assets increased approximately $5 million
from year-end 1995. The increase was attributable to higher accounts receivable
($19.5 million). The higher accounts receivable are due to higher revenue
activity in the third quarter compared to the later part of the fourth quarter
of 1995. As the normal cycle of business activity subsides later in the year,
the accounts receivable should decrease. Offsetting the effect of the increase
in accounts receivable, inventories decreased by $7 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Strategic Review of Operations - The company is currently performing a strategic
review of each of its operations. During the third quarter, the company
announced it has agreements to sell its Hy-Lift, Sealed Power and SP Europe
division. Completion of this review could result in additional divestitures
and/or strategic acquisitions. At this time, no additional divestiture or
acquisition decisions have been made.
Impact of the Clean Air Act and Other Environmental Regulations During 1995 and
1996, many delays by states in implementing Federally mandated emissions testing
programs occurred. These delays or modifications in state programs reduced the
company's expected incremental revenues from gas emissions test equipment in
1995, in 1996, and thereafter. While uncertainties still exist as to when the
states will proceed with these emissions testing programs, the company believes
that the states could begin implementation within the next few quarters. At that
time, the company should share in a portion of this market.
Automotive Diagnostics Goodwill - At September 30, 1996, $67.7 million of
goodwill relates to the company's acquisitions of Bear Automotive Company (1988)
and Allen Testproducts (1993), collectively referred to as Automotive
Diagnostics. The company's strategic review of operations and its annual
planning process are currently underway and include the review of Automotive
Diagnostics. Many external and internal factors are currently being evaluated to
determine the projected results and future direction of this operation. Subject
to the findings of the strategic review and annual plan, the company's
assessment of the carrying value of this goodwill could change. It is
anticipated that the review and plan will be completed by the end of the fourth
quarter 1996.
Pending Divestitures - The pending divestitures of Hy-Lift, and the Sealed Power
and SP Europe divisions, will result in a significant change in the company's
financial structure. The Hy- Lift divestiture is scheduled to close at the end
of October. However, the transaction to sell the Sealed Power and SP Europe
divisions is currently undergoing due diligence by the purchaser and is also
awaiting regulatory approval. The company is unable to state with certainty that
the approval will be received.
Liquidity and Financial Condition
The company's liquidity needs arise primarily from capital investment in new
equipment, funding working capital requirements and to meet interest costs. The
company is highly levered. This financial leverage requires management to focus
on cash flows to meet interest costs and to maintain dividends. Management
believes that operations and the credit arrangements will be sufficient to
supply funds needed by the company in 1996.
Cash Flow
Nine months ended September 30,
1996 1995
------ ------
(in millions)
Cash flow from:
Operating activities...... $ 54.1 $ 61.0
Investing activities...... (12.0) 48.9
Financing activities...... (34.6) (98.5)
Effect of exchange rate... 0.7 (0.4)
------ ------
Net Cash Flow............ $ 8.2 $ 11.0
====== ======
Cash flow from operating activities in the first nine months of 1996 was $54.1
million, and compares with $61.0 million for the first nine months of 1995. The
first nine months of 1996 cash flow from operating activities reflects improved
working capital management, primarily inventory. The first nine months of 1995
included $26.9 million of tax refunds received.
Cash flow from investing activities during the first nine months of 1996 and
1995 include capital expenditures of $12.0 million and $24.3 million,
respectively. Capital expenditures for 1996 should approximate $20 million for
the year. The first nine months of 1995 cash flow from investing activities also
included $73.2 million received from the sale of SPX Credit Corporation.
Cash flow from financing activities during the first nine months of 1996
reflects the company's quarterly dividend payment and a $33.5 million reduction
in borrowings. During the first nine months of 1995, cash flow from financing
activities included the company's quarterly dividend payments and a $94.5
million reduction in borrowings, principally from the proceeds on the sale of
SPX Credit Corporation.
Capitalization
Sept. 30, December 31,
1996 1995
------ ------
(in millions)
Notes payable and current maturities
of long-term debt..................... $ 1.7 $ 0.9
Long-term debt......................... 284.1 318.9
------ ------
Total debt........................... $ 285.8 $ 319.8
Shareholders' equity................... 173.7 162.2
------ ------
Total capitalization................... $ 459.5 $ 482.0
====== ======
Total debt to capitalization ratio..... 62.2% 66.3%
At September 30, 1996, the following summarizes the debt outstanding and unused
credit availability:
Total Amount Unused Credit
Commitment Outstanding Availability
---------- ----------- ------------
(in millions)
Revolving credit............ $ 175.0 $ 55.0 $ 104.7(a)
Swingline loan facility..... 5.0 - 5.0
Senior subordinated notes... 202.7 202.7 -
Industrial revenues bonds... 15.1 15.1 -
Other....................... 16.9 13.0 3.9
--------- --------- ---------
Total debt................ $ 414.7 $ 285.8 $ 113.6
========= ========= =========
(a) Decreased by $15.3 million of facility letters of credit outstanding at
September 30, 1996 which reduce the unused credit availability.
The company is required to maintain compliance with restrictive covenants
contained in the revolving credit agreement, as amended, and the senior
subordinated note indenture. Under the most restrictive of these covenants, the
company is required to:
Maintain a leverage ratio, as defined, of 75% or less. The leverage ratio
at September 30, 1996 was 65%.
Maintain an interest expense coverage ratio, as defined, of 1.75:1 or
greater. The interest expense coverage ratio at September 30, 1996 was
2.32:1.
Maintain a fixed charge coverage ratio, as defined, of 1.50:1 or greater.
The company's fixed charge coverage ratio at September 30, 1996 was 1.81:1.
Limit dividends paid during the preceding twelve months to 10% of operating
income plus depreciation and amortization (EBITDA) for the twelve month
period. Dividends paid for the twelve month period ended September 30, 1996
were $5.4 million and 10% of EBITDA for the period was $7.8 million.
Covenants also limit capital expenditures, investments and transactions with
affiliates.
Management believes that the unused credit availability on the revolving credit
facility is sufficient to meet operational cash requirements, working capital
requirements and capital expenditures for 1996. Aggregate future maturities of
total debt are not material for 1996 through 1998. In 1999, the revolving credit
agreement expires and borrowings on the revolver would become due, however,
management believes that the revolving credit agreement would likely be extended
or that alternate financing will be available to the company.
--------------------
The foregoing discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements which
reflect management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including but not limited to those matters discussed under the
caption "Factors That may Affect Future Results" above. Due to such
uncertainties and risks, readers are cautioned not to place undue reliance on
such forward-looking statements, which speak only as of the date hereof.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) None.
(4) Waiver and Amendment No. 6 to Credit Agreement between SPX
Corporation and The First National Bank of Chicago, as agent for
the banks named therein, dated as of September 20, 1996.
(10) None.
(11) Statement regarding computation of earnings per share. See
Consolidated Condensed Statements of Income.
(15) None.
(18) None.
(19) None.
(20) None.
(22) None.
(23) None.
(24) None.
(27) Financial data schedule.
(99) None.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPX CORPORATION
(Registrant)
Date: November 11, 1996 By /s/ John B. Blystone
Chairman, President and
Chief Executive Officer
Date: November 11, 1996 By /s/ Patrick J. O'Leary
Vice President, Finance,
and Chief Financial and
Accounting Officer
5
9-MOS
DEC-31-1996
SEP-30-1996
25,239
0
159,416
(8,449)
133,880
375,572
427,878
(230,663)
806,735
224,095
202,665
162,721
0
0
10,938
806,735
857,910
857,910
655,795
816,036
526
0
24,865
16,483
6,355
10,128
0
(1,153)
0
8,975
.65
.65
WAIVER AND AMENDMENT NO. 6 TO CREDIT AGREEMENT
This Waiver and Amendment No. 6 to Credit Agreement ("Amendment No. 6")
dated as of September 20, 1996 is made by and among SPX Corporation, a Delaware
corporation (the "Borrower"), each of the Lenders and The First National Bank of
Chicago, individually and as agent for the Lenders.
R E C I T A L S
A. The parties hereto are party to a certain Credit Agreement dated
as of March 24, 1994 (as heretofore amended, the "Credit Agreement"). Each
capitalized term used but not otherwise defined herein shall have the meaning
ascribed to such term in the Credit Agreement.
B. The parties hereto desire to enter into this Amendment No. 6 in
order to (a) amend Section 2.7 and Section 6.32 of the Credit Agreement to make
certain changes as more fully described hereinafter and (b) waive currently
existing Unmatured Defaults under the Credit Agreement more fully described
hereinafter.
NOW, THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the Agent, the Lenders and the Borrower
agree as follows:
1. Amendments.
1.1 Amendment of Section 2.7. Section 2.7 of the Credit Agreement
shall be amended by deleting clause (c)(ii) in its entirety and inserting the
following in lieu thereof:
"(ii) in an amount equal to 100% of the aggregate Net Available Proceeds
in excess of $1,000,000 realized upon all Asset Dispositions in any fiscal
year of the Borrower (other than any sale or disposition of SPX Credit,
the Sealed Power Division and the Hy-Lift Division), such reduction to be
effective concurrently with the receipt thereof by the Borrower or any
Subsidiary; and".
1.2 Amendment of Section 6.32. Section 6.32 of the Credit Agreement
is deleted in its entirety and the following is added in substitution therefor:
" 6.32. Subordinated Debt Documents. The Borrower will not make any
amendment or modification of any Subordinated Debt Documents, nor shall
the Borrower, on or after March 4, 1996, directly or indirectly
voluntarily repay, defease, or in substance defease, purchase, redeem,
retire, or otherwise acquire any of the Indebtedness evidenced by the
Subordinated Notes in an aggregate amount exceeding $50,000,000; provided,
however, that upon the consummation of the contemplated sale and
disposition of the assets of (i) Hy-Lift Division to W.A. Thomas Company
and (ii) Sealed Power Division to Dana Corporation for cash consideration
not less than $150,000,000, such amount shall be increased from
$50,000,000 to $100,000,000."
2. Waivers.
2.3 By its signature below each of the undersigned Lenders hereby
specifically waives any objection that it may have and any Unmatured Default
caused by the violation of Section 6.13 of the Credit Agreement as a result of
the Borrower permitting the sale and disposition for cash consideration of all
or substantially all of the assets of (i) its Hy-Lift Division to W.A. Thomas
Corporation and (ii) its Sealed Power Division to Dana Corporation, each as
heretofore publicly announced. This specific waiver applies only to the
above-specified asset sales.
3. Representations and Warranties. The Borrower represents and warrants
that: (a) this Amendment No. 6 is a legal, valid and binding obligation of the
Borrower enforceable against it in accordance with its terms, except as the
enforcement thereof may be subject to (i) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally, and (ii) general principals of equity (regardless
of whether such enforcement is sought in a proceeding in equity or at law); and
(b) after giving effect to the execution of this Amendment No. 6, no Default or
Unmatured Default has occurred and is continuing.
4. Effective Date. Each waiver and amendment contained in this Amendment
No. 6 (except for the amendment contained in Section 1.1) shall become effective
only upon receipt by the Agent (with sufficient copies for the Lenders) of
written agreement thereto by the Agent, the Required Lenders and the Borrower.
The amendment contained in Section 1.1 of this Amendment No. 6 shall become
effective only upon receipt by the Agent (with sufficient copies for the
Lenders) of written agreement thereto by the Agent, all Lenders, and the
Borrower. The date upon which the above condition has been satisfied is the
"Effective Date." Upon the occurrence of the Effective Date, each waiver and
amendment which has received the requisite approval shall be deemed to have
become effective as of the date first written above.
5. Effect of Amendment. Upon execution of this Amendment No. 6 and the
occurrence of the Effective Date, each reference in the Credit Agreement to
"this Agreement," "hereunder," "hereof," "herein," or words like import, and
each reference to the Credit Agreement in any of the other Loan Documents shall
mean and be a reference to the Credit Agreement as amended hereby. Except as
specifically set forth above, the Credit Agreement, the Exhibits and Schedules
thereto and the Notes shall remain unaltered and in full force and effect and
the respective terms, conditions or covenants thereof are hereby in all respects
ratified and confirmed.
6. Counterparts. This Amendment No. 6 may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute one instrument.
7. Governing Law. This Amendment No. 6 shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the State
of Illinois, but giving effect to federal laws applicable to national banks.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
6 to be executed by their duly authorized representatives as of the date first
written above.
SPX CORPORATION
By: Patrick J. O'Leary
Title: Vice President, Finance and
Chief Financial and
Accounting Officer
THE FIRST NATIONAL BANK OF CHICAGO,
individually as a Lender and
as Agent
By: Patricia H. Besser
Title: Vice President
THE BANK OF NEW YORK, as Lender
By: John M. Lokay, Jr.
Title: Vice President
NBD BANK, N.A., as Lender
By: Patricia H. Besser
Title: Vice President
THE BANK OF NOVA SCOTIA,
as Lender
By: F.C.H. Ashby
Title: Sr. Manager Loan Operations
MICHIGAN NATIONAL BANK,
as Lender
By: Joseph M. Redoutey
Title: Relationship Manager
SUMITOMO BANK, as Lender
By: Hiroyuki Iwami
Title: Joint General Manager
THE YASUDA TRUST & BANKING
CO., LTD., as Lender
By: K. Inow
Title: Joint General Manager
MITSUBISHI TRUST & BANKING
CORPORATION, as Lender
By: Masaaki Managishi
Title: Chief Manager
COMERICA BANK, as Lender
By: James R. Grosett
Title: Vice President
OLD KENT BANK, as Lender
By: Richard K. Russo
Title: Vice President
THE BANK OF TOKYO TRUST
COMPANY, as Lender
By: E. A. Tocchini
Title: Assistant Vice President
